BUSINESS CORNER
How Contractors Can Reduce Their Tax Liability O
By Mark Woodward and Shane Hunt, CPAs, Moss Adams LLP
ne of the greatest challenges to your company’s financial success is identifying
and pursuing the right tax savings opportunities. With marketplace competition
fierce, it’s important to reduce costs so you can reinvest those savings in your business. One way to accomplish this is through various tax savings oppor- tunities that can help reduce your tax liability while driving value to your bottom line.
Work Opportunity Tax Credit (WOTC)
Te WOTC is a federal income tax
credit designed to encourage businesses to hire individuals facing barriers to employment based on various criteria, such as individuals receiving government assistance. Depending on which target group
an individual belongs to, the maximum credit per new hire can range from $2,400 to $9,600. Te ultimate value of the tax credit is determined by:
Te target group under which the employee qualifies.
Te number of hours worked.
Te gross wages earned in the applicable period of employment. States are adopting similar
programs that provide state-level hiring credits. Read more about the WOTC and other tax credits in our Insight.
R&D Tax Credit Many businesses already do work
that qualifies for significant R&D tax credits – and construction companies are no exception. As the construction industry takes
on additional risk, with contractors shouldering more design responsi- bility, it’s also moving toward the use of innovative construction materials to create more reliable energy-efficient structures. Meanwhile, customers, architects,
and engineers continue to raise the bar on innovation, driving the expectation that contractors will develop new processes and engineering solutions. Specific examples of these qualifying activities include the design and construction of the following:
New or improved infrastructure projects, such as bridges, dams, subsurface tunnels, and rail systems.
Specialized machinery, equipment, and tools.
New or improved electrical, lighting, alarm, communication, and control systems.
Innovative buildings and associated components, such as a building envelope system or structural foundation system.
New or improved HVAC and mechanical systems.
Te R&D tax credit also provides
a payroll tax offset. It’s available on a quarterly basis beginning in the first calendar quarter after a company files its annual federal income tax return. As outlined in our previous Insight, new businesses that need cash can use the R&D credit for this purpose for the first five years they have gross receipts. Learn more about how to claim the R&D tax credit in our guide.
Multistate Employment Taxes Construction companies that have
employees who travel and work in Mark Woodward Shane Hunt
multiple states – requiring personal income tax to be withheld in each of these states – often face complex tax issues, such as:
Multistate personal income tax withholding.
State unemployment insurance.
Other state and local employment taxes.
Understanding the various
state payroll tax requirements can help contractors make informed business decisions and create internal policies for traveling and out-of-state employees.
Next Step Your company’s financial stability
depends on your ability to reduce its tax liability. Seeking applicable tax savings opportunities is one way to better position your business for future success.
Mark Woodward has provided tax
consulting services since 1997. He can be reached at (310) 481-1230 or mark.
woodward@mossadams.com. Shane Hunt has been in public accounting since 2008 and specializes in R&D tax credits and incentives for construction companies. He can be reached at (425) 303-3031 or
shane.hunt@
mossadams.com.
22 September/October 2017
California Constructor
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